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GameStop Corp. (NYSE:GME) Plunges on Low Sales

Posted by Todor Pichurov, May 28, 2013 08:49

Virtually everyone in the gaming business is going through hard times as sales of both hardware and game products are experiencing a dip. The world's biggest physical game retail chain, GameStop Corp. (NYSE:GME) didn't manage to avoid the fallout as well, as the stock closed almost 11% down on May 24.

The slump was likely brought about by GameStop announcing first quarter results that showed a 6.8% drop in revenues on a year-over-year basis. The revenue decrease was caused by the “late stage effects of the current console cycle”, an explanation that does make perfect sense, as gamers are holding out and saving their cash for the rollout of the new generation of consoles later this year.

Despite the slump in total sales, GME recorded a significant increase in their mobile and digital sales. The company also exceeded its high EPS guidance by $0.03 to record diluted EPS of $0.46. The analyst consensus is a Buy rating, with a single analyst giving GME a Sell, and four others - a Hold. The consensus for GameStop's target price is $36.73.

The company's projections for the current quarter are not too optimistic as well, given the fact that the XBox One and the Playstation 4 will most likely not be put up for sale in the following three months. Still, with no backward compatibility for both consoles, GameStop will probably be selling a lot of new game units this year. How many will purchase the new generation of consoles is a different question as both Sony and Microsoft faced significant backlash due to the very same lack of compatibility with games from the previous generation. Additionally, Microsoft's decision to bar indie self-publishing on the XBox One may also be a factor, even if a small one, in how much the new console sells.

GameStop announced a quarterly dividend amounting to $0.275 per share that is payable on June 19. The dividend will be payable to all shareholders of record as of the end of the trading session on June 4.

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